KWOK KA v. MAK SIU HING AND OTHERS

HCA 3262/97

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 3262 OF 1997

_____________

________________

J U D G M E N T

________________

1. This is yet another sorry tale of misadventure in the property market.

2. I shall refer to the parties as they are in the Action.

3. The 1st defendants were the owners of an old tenement block in Temple Street, Kowloon (the property). On 10th November 1996, they agreed to sell the property to the 2nd defendant for $7.5m.. A provisional sale and purchase agreement in which the usual "escape" clauses had been deleted was signed by the parties. The following day, the 2nd defendant's solicitors wrote to the 1st defendants' solicitors (the letter) enclosing a copy of the provisional agreement and asking for a draft formal agreement and the title deeds.

4. On 13th November, the 1st defendants agreed to sell the property to the plaintiff at a price of HK$8.38 million. A deposit of $50,000 was paid. A further $800,000 was to be paid on or before 13th December when a formal agreement was to be signed. Completion was to be on or before 12th May 1997.

5. Among the printed clauses in the agreement of 13th November were the following

"(7) Should the Buyer renege when the time came, refused to perform this agreement and did not buy, then the Seller shall forfeit the deposit. The Seller shall also have the right to resell the said Property or to reserve it for self use. If any one party reneges, then the party that reneges shall pay the commission $(__________)

(8) Should the Seller renege when the time came, refused to perform this agreement and did not sell, (he shall) compensate the Buyer by (paying him) a double of the deposit, in total (HK$__________) paid. If the Buyer receives from the Seller the double deposit compensation, this provisional agreement for sale and purchase shall be void immediately. The Buyer agrees not to claim against the Vendor for any legal liability and the Buyer also agrees not to register this provisional agreement for sale and purchase at the Land Registry or Lands Department."

6. At the end of the printed clauses was a space for "remarks". In this space was written in manuscript

"If the deeds have no problem, then there shall be definite purchase and definite sale."

7. On 20th November, the plaintiff's solicitors received a draft formal agreement from the solicitors acting for the 1st defendants in connection with this sale. The following day, the title deeds were sent to the plaintiff's solicitors who returned the draft formal agreement as approved on 22nd November. The following day, the 1st defendants' solicitors asked for return of the title deeds. The 1st defendants said they did not want to sell the property anymore, a statement repeated the following day. Nonetheless, the plaintiff's solicitors raised requisitions on 25th November. On 28th November, following a further demand for return of the deeds, the plaintiff's solicitors returned them to the 1st defendants' solicitors. On 4th December, the agreement of 13th November was registered in the Land Registry.

8. On 12th December, the solicitors now acting for the 1st defendants sent a cheque for $100,000.00 to the plaintiff's solicitors, apparently in reliance on clause 8 of the agreement. The cheque was rejected.

9. On 17th February 1997, the plaintiff's solicitors learned from the 2nd defendant's solicitors of the agreement dated 10th November.

10. After due consideration, the plaintiff believed that the agreement dated 10th November had in fact been concluded after the agreement between the plaintiff and the 1st defendants and that the document itself had been backdated. The plaintiff issued a writ against the 1st defendants for specific performance and damages; and against the 2nd defendant for a declaration that the plaintiff's interest in the property prevailed over that of the 2nd defendant, and for damages for procuring breach of agreement by the 1st defendants.

11. The writ was issued on 27th March 1997. A statement of claim was issued on 21st April 1997.

12. The 1st defendants filed a defence on 6th May while the 2nd defendant had filed a defence by 30th April. Subsequently, the allegation by the plaintiff of inducement on the part of the 2nd defendant was struck out.

13. Meanwhile, the 2nd defendant, in separate miscellaneous proceedings brought against the plaintiff, sought a declaration that the agreement of 13th November was null and void; and vacation of the registration of that agreement in the Land Registry. An order was made that both sets of proceedings should be heard together.

14. The matters came on for trial before me on 10th December 1998 when it was agreed that the plaintiff's action should be tried first. Mr. Lam for the plaintiff opened his case. He took me with some care through the facts upon which he relied for asserting that the 10th November agreement had been backdated. Immediately after the morning break, I saw, for the first time, the letter which the plaintiff's solicitors had themselves seen only the day before. After having had an opportunity to consider the letter with more care, Mr. Lam was forced to concede that he could not challenge its authenticity and unsurprisingly sought leave to withdraw the action against the 2nd defendant. I gave leave for the action to be withdrawn. I made an appropriate declaration and order in favour of the 2nd defendant in the miscellaneous proceedings.

15. Apart from costs, there remained the plaintiff's action against the 1st defendants. Three issues arose for my determination

(1) could the 1st defendants rely upon the "escape" clause i.e. clause 8; if so

(2) did they meet their obligations under that clause and

(3) assuming the 1st defendants to be liable to the plaintiff for damages, which is the appropriate date for valuation of the property.

16. There is a great deal of jurisprudence, to which I have contributed, about "escape" clauses. Such clauses have also been referred to as "cooling off periods" and as "options". However these clauses may be described, there is no doubt that, provided they are properly worded, they provide an effective method for the vendor or purchaser, as the case may be, to withdraw from the agreement. In this case, it was not argued that the wording of clause 8 is ineffective.

17. Mr. Lam contended that clause 8 was overridden by the "remarks" which he described as a "must sell must buy" provision. He referred to Lewison, The Interpretation of Contracts 2nd Ed. In this work, the introduction to paragraph 8.10 reads

"In case of inconsistency between written (or typed) clauses in a contract specially negotiated by the parties and printed clauses forming part of the standard form, the written clauses will prevail."

18. After a short historical background, the author continued

"The printed form is designed to cope with a number of different contracts being made in different circumstances, whereas the written or typed clauses are designed to cope only with the particular contract in the course of being made. In such circumstances the court will place greater weight on the written clauses, and if necessary allow them to prevail against the printed clauses. This is a different facet of the principle discussed in the last preceding paragraph. In Robertson v. French, Lord Ellenborough said:

"The only difference between policies of insurance and other instruments in this respect is that the greater part of the printed language of them being invariable and uniform has acquired from use and practice a known and definite meaning, and that the words superadded in writing (subject indeed always to being governed in point of construction by the language and terms with which they are accompanied) are entitled nevertheless, if there should be any reasonable doubt upon the sense and meaning of the whole, to have a greater effect attributed to them than to the printed words, inasmuch as the written words are the immediate language and terms selected by the parties themselves for the expression of their meaning, and the printed words are a general formality adapted equally to their case and that of all other contracting parties upon similar occasions and subjects."

19. The author then goes on to review later authorities, all of which seem to accept that, in the case of conflict, a written or typed clause should prevail.

20. According to Mr. Lam, the intention of the parties was that the transaction should not be aborted other than for problems with the title. What, he asked rhetorically, would otherwise be the point of the "remarks". He acknowledged that clause 8 had not been deleted as it had been in the agreement with the 2nd defendant, but pointed out that the blank space for the amount to be paid had been left uncompleted which, he said, reflected the intention of the parties.

21. Mr. Lam rightly drew my attention to the decision of Woo J. in Cheerup Ltd. v. Wong Sau Fong [1996] 4 HKC 92 in which he construed an agreement which contained the clause "this property must be bought and sold". The judge came to the conclusion that there was no discernible main object other than that the parties intended to enter the agreement with all its terms binding upon them. The judge speculated that the clause in question was simply to reinforce the idea that the agreement, a provisional one, was binding upon the signatories. He declined to accept that the clause was the main object and had the effect of overriding other provisions.

22. Finally, Mr. Lam said that the 1st defendants are endeavouring to get the best of both worlds. In proceedings in the District Court brought by the estate agent to recover his fee, counsel for the 1st defendants accepted that clause 8 had been excluded by the "remarks".

23. For the 1st defendants, Mr. Koo embraced the decision in Cheerup. He suggested that the "remarks" are not necessarily inconsistent with clause 8, being perhaps included to reinforce the binding nature of the provisional agreement. He reminded me that clauses 7 and 8 had not been deleted and should not be rejected unless wholly inconsistent with or repugnant to the remainder of the agreement. He said that, taking the agreement as a whole, both the printed and written clauses are capable of standing together. He reminded me further that, it being undisputed that the form of agreement is that of the plaintiff, himself an estate agent, the agreement should be construed against the plaintiff if necessary.

24. In my judgment, the decision in Cheerup does not assist the 1st defendants. The clause in question in that case was a printed one. The judge's approach, therefore, was wholly different.

25. For my part, I have no difficulty with this agreement. Clearly, words peculiar to a transaction must have greater weight. The words used here plainly provided that the only impediment to the consummation of the sale should be difficulties with the title. That view is, I think, reinforced by the omission to complete the amounts payable in the two "escape" clauses.

26. Mr. Koo tried, albeit faintly, to argue that the 1st defendants could, in any event, rely upon the "remarks" because, by 13th November, the 1st defendants no longer had a good title to the property because of the agreement signed with the 2nd defendant on 10th November. I suggested to Mr. Koo that this was a good boot-straps argument. I do not think it necessary to waste further time on this point.

27. I am with Mr. Lam. I find that, because of the specific remarks included in the agreement, the availability of clause 8 was excluded.

28. Assuming, however, clause 8 was available to the 1st defendants, the next question is whether the 1st defendants paid the required amount of $100,000.00 to the plaintiff within sufficient time.

29. In Chan Chun Ming Colman and Kwan Yee Fan v. Chung Lik Keung and Tam Sau Kam [1991 No. A4025] an unreported judgment dated 17th June 1992, I dealt with a provision where a vendor, who failed to sign a formal agreement, should refund the initial deposit and at the same time "immediately" compensate the purchaser with an equivalent sum. I quoted with approval, a decision of Godfrey J. in Kentex Investment Ltd. v. Hui Lap Ping Sam [1991 No. MP 3447] who was dealing with what was described as an "alternative or substituted performance clause". That judge said that, even if the word "immediately" is not used, the obligation to pay the compensation must be within a reasonable time. I went on to say that, where there is no qualification as to time, the obligation to pay is to pay promptly. I suggested that in the circumstances of Hong Kong, prompt payment means within 24 hours of the failure to sign a formal agreement or such other event as might have been specified.

30. I take into account, as Mr. Koo urged, that the 1st defendants were no doubt in a state of alarm and confusion at what had occurred because they had thought mistakenly that they could withdraw from the earlier agreement; that the date upon which the formal agreement was to be signed was not until 13th December; and that completion was not until May the following year. Given the 1st defendants' difficulties and the generous time scale, Mr. Koo argued that the period between the 1st defendants' indication that they would not sell to the plaintiff and the payment in accordance with clause 8 was not excessive.

31. I disagree. By 29th November at the latest, the 1st defendants had made clear that they were not going to perform the agreement and sell to the plaintiff. There was no warrant or justification, in my view, for the defendants to wait until the day before 13th December, when the formal agreement was due to be signed, before compensating the plaintiff. If they wished to extricate themselves from the later agreement, they should have given clear notice that they were doing so (which they did) and promptly i.e. no later than next day paid the plaintiff what was due under that agreement. There was no reason to retain the plaintiff's deposit or keep him out of the further sum to which he was entitled under clause 8.

32. Even if I am wrong about the true construction of the agreement, therefore, I would have no hesitation in finding that the 1st defendants failed to observe their obligation under clause 8 and were consequently in breach of agreement.

33. What then is the correct date for valuing the property for the purpose of assessing the damages to which I find the plaintiff entitled.

34. It is not, I think, in dispute that the normal measure of damages in relation to the sale of land is the market value of the property at the contractual time for completion less the contract price: McGregor on Damages 16th Ed. para. 964. That principle, however, is not absolute. It may be varied to meet the justice of the case and, in particular, where a rising property market could cause serious injustice to a purchaser, the date of judgment may be the appropriate time for a valuation. The position is, I think, helpfully set out by Mr. Andrew Park Q.C. sitting as a Deputy High Court Judge in Suleman v. Shahsavari [1988] 1 WLR 1181. At page 1183, the Deputy Judge after mentioning the authorities ending with the decision of the House of Lords in Johnson v. Agnew [1980] AC 367 said

"I summarise the result of them as follows. (a) A purchaser who loses his purchase is entitled to damages at common law as well as to damages in lieu of specific performance under the Chancery Amendment Act 1858. (b) The usual measure of damages at common law has in the past been the difference between the contract price and the price at completion, plus interest from completion until judgment. (c) This is not an absolute rule of law, and damages may be assessed by reference to the value at a different date if it would be more just to do so. (d) Where, as often in recent years, there have been dramatic changes in property values, it may be more just to assess damages at a different date. (e) That is particularly so where the innocent party reasonably continues to try to have the contract completed: in such a case it is logical and just to assess damages as at the date when (otherwise than by his default) the contract is lost."

35. Mr. Lam, of course, is content for the property to be valued as at the date of completion when the market was considerably higher. Mr. Koo submitted that the correct date is the date of trial, being the first time when the plaintiff elected for damages instead of specific performance. As I understand it, the property is now worth approximately what it was worth at the time when the agreement was made in November 1996.

36. In a property market that is as volatile as that in Hong Kong, where the advantage can vary from the vendor to the purchaser and perhaps back to the vendor within a relatively short space of time, it seems to me that there is much to be said for clinging to the rock of certainty that is provided by the completion date. I can see that, in a rising market, there is a case for taking a valuation at a date later than completion, particularly where an innocent purchaser of a particular house or flat genuinely wants the unit which he agreed to buy. But unless there is some peculiarity about the unit that especially attracts the purchaser, I would suggest that it is better for him to go back to the market the moment the vendor has indicated that he will not proceed with the sale and thus mitigate his damage.

37. In the present case, it is the 1st defendants who brought the calamity upon themselves. I can see no justification for relieving them of their liability to pay damages based upon a valuation of the property as at the date of completion, namely 12th May 1997.

38. Accordingly, there will be judgment for the plaintiff against the 1st defendants for damages to be assessed. Those damages are to be assessed upon the basis of a valuation of the property as at 12th May 1997. The assessment, if one is necessary, may be before a master or another judge.

Costs

39. After giving leave to the plaintiff to withdraw his claim against the 2nd defendant and after granting the 2nd defendant the relief which it sought in the miscellaneous proceedings, I was asked by the 2nd defendant for costs against the plaintiff. I indicated, however, that I was minded to make an order that the respective solicitors should pay some if not all of the costs involved. I said it was my view that the letter could and should have been produced much earlier. Had this been done, the Action might not have been started or at least not got beyond the stage of discovery. I then adjourned the application for costs to enable appropriate representations to be made on behalf of the solicitors as to why they should not bear any costs.

40. Apart from the background which I have already set out, the following matters seem relevant. By 25th February 1997, the plaintiff's then solicitors had made it plain that the plaintiff thought the 10th November agreement to be a forgery as to the date. The only response to that letter was that the 2nd defendant's solicitors were taking instructions and advice. Following issue and service of the writ by the plaintiff's current solicitors, the 2nd defendant on 7th April both acknowledged service and commenced the miscellaneous proceedings. The statement of claim followed on 21st April by which time, as Mr. Lam put it, it was clear that the plaintiff was serious about the allegations he was making.

41. Following the issue of miscellaneous proceedings by the 2nd defendant, a series of affirmations were filed on behalf of the 2nd defendant, the intention of which was to show that the date on the 10th November agreement was genuine.

42. On 9th July 1997, the 2nd defendant gave discovery. In its list of documents was Item 4 "correspondence exchanged between solicitors for the parties". On 12th September, the plaintiff's solicitors asked for copies of Item 4. On 17th October, the plaintiff's solicitors repeated their demand for copies of Item 4. Their letter, however, crossed with a letter of 16th October from the 2nd defendant's solicitors sending copies of the documents requested. These documents consisted of 14 pages of correspondence in the litigation between the plaintiff's and the 2nd defendant's solicitors.

43. On 11th September, the 2nd defendant served its witness statements. On 6th October, the plaintiff's application that the two sets of proceedings should be consolidated was heard. The 2nd defendant opposed the application on the ground about the plaintiff had no arguable case.

44. On 6th February 1998, the 2nd defendant's application to strike out the plaintiff's claim, because it was based on mere suspicion, was heard by a master. The master struck out the claim in so far as it pleaded inducement, but left the allegation that the agreement of 10th November had been backdated.

45. The 2nd defendant gave further discovery on 12th February, 30th April and 20th May. Of this discovery, which, of course, did not contain the letter, the plaintiff's solicitors asked only for copies of the documents in the supplemental list given on 30th April.

46. There followed a hearsay notice by the 2nd defendant on 30th April; a checklist hearing before the listing judge; and, on 20th May, a notice to admit facts served by the 2nd defendant. This notice required the plaintiff to admit the 2nd defendant's case in detail, which the plaintiff declined to do.

47. Finally, on 20th November, the plaintiff's solicitors asked for a formal inspection of all documents discovered. Inspection took place on 27th November when the letter was not available. Then, on 8th December, two days before trial, the plaintiff's solicitors asked both the 1st and 2nd defendant's solicitors for correspondence relating to the sale. The following day, both solicitors responded with bundles of correspondence containing the letter. The original of the letter was made available during the course of Mr. Lam's opening on 10th December.

48. The 2nd defendant's solicitors provided an affidavit from the assistant solicitor who was dealing with the action on behalf of the 2nd defendant, but who is no longer with their firm. The solicitor said that, consequent upon the request for copies of the Item 4 documents on 12th September, she instructed her secretary to make copies and supply them to the plaintiff's solicitors. She signed a covering letter which had been prepared for her signature.

49. The affidavit makes no reference to the letter or the conveyancing file in which it was contained. Because of the significance which I made plain I attach to the letter, I am afraid I have to assume that the solicitor had either failed to find or to appreciate the importance of the letter. The former explanation is more likely because I was informed by Mr. Chong on behalf of the 2nd defendant that, because of the difficulties which arose with this transaction and, in particular, difficulties with the Land Registry, the conveyancing file may well have been elsewhere.

50. It is greatly to the credit of the 2nd defendant's solicitors that, through Mr. Chong, they accepted part of the moral blame for what has occurred. If costs are awarded in favour of the 2nd defendant, they will waive the difference between their costs since 23rd July 1997 and the taxed costs recoverable from the plaintiff. If no order is made in the 2nd defendant's favour, they are prepared to waive their charges since 23rd July 1997 so that the 2nd defendant will not be out of pocket for costs incurred since that date.

51. No similar acknowledgment has been made by the plaintiff's solicitors. Through Mr. Lam, they take the view that they were entitled to rely upon the discovery given by the 2nd defendant and the copy documents which were supplied to them. They said that it was not for them to do the 2nd defendant's solicitors' job. They argued that the 2nd defendant or its solicitors had ample opportunity, as the case progressed and the plaintiff's case became known, to have produced the letter and brought an end to the proceedings. It was only as a very last resort that they thought to enquire about conveyancing correspondence between the 1st and 2nd defendant's solicitors. They pointed out that, because the letter was so evidently conclusive in favour of the 2nd defendant, there was no reason for them to have suspected its existence.

52. This dispute was about a conveyancing transaction. In my view, the first thing that anyone would have looked at or asked about would have been the conveyancing file and documents contained in it. That it may not have been immediately available to the litigation solicitor is irrelevant. That file, if there was one, was an obvious and important, if not primary, source of documents. I like to think that, even before the plaintiff issued his writ, someone would have had the wit to have unearthed the letter and shown it to the plaintiff's solicitors. It is clear that the plaintiff's action would then never have been commenced. But certainly, I can see no excuse for failing to discover this document in the first list of documents provided by the 2nd defendant on 9th July 1997. It is no excuse to say that, if the plaintiff's solicitors had inspected the documents as they were entitled to do, they would have found the letter or at least realised that there was an omission. For reasons which I have already given, it is clear that the then litigation solicitor acting on behalf of the 2nd defendant did not have and did not appreciate the significance of the conveyancing file. And it is clear that neither that solicitor nor her successor subsequently thought about that file or found the letter, because otherwise they must surely have produced it.

53. I am firmly of the view, however, that not all of the blame can be attached to the 2nd defendant's solicitors. As I said, this was a conveyancing transaction and the first focus must surely have been upon on the customary conveyancing correspondence. When the plaintiff's solicitors received copies of Item 4 in the 2nd defendant's first list of documents, the omission of any documents other than correspondence in the course of litigation must have been glaring. The solicitors should have been put on enquiry. If they had enquired and in fact been told there were no such documents, there would have been an additional justification for the allegations which the plaintiff was making.

54. The respective solicitors were retained by the plaintiff and the 2nd defendant for the conduct of the litigation. In so far as discovery is concerned, instructions will always have to be taken from the client and, if the client fails to produce documents that should have been discovered, the client will have to face the consequences. In the present case, however, the letter was not in the hands of the client, the 2nd defendant, and was not something upon which the 2nd defendant could be expected to assist. On the contrary, the 2nd defendant was entitled to expect its solicitors to have found and appreciated the significance of the letter and to have used it to have prevented or terminated the litigation without further delay (or at least to have put the plaintiff on notice, so that there would be no question but that the plaintiff would have to bear costs if ultimately unsuccessful). As far as the plaintiff was concerned, he was entitled to expect his solicitors to deal with procedural steps, such as inspection, and a consideration of whether there might be other documents without reference to him. In my view, there was a signal failure by the solicitors either properly to inspect or to give consideration to the existence of other relevant documents.

55. In my judgment, on each side there was such a dereliction of duty on the part of solicitors as to be so serious as to call for an order under the provisions of Order 62 r.8(1): Orchard v. South Eastern Electricity Board [1987] 1 QB 565 and Ho Lee Man v. Wong Wai Kai (No. 2) [1993] 1 HKC 193.

56. As between the plaintiff and 2nd defendant, therefore, the order I make is as follows

1. The plaintiff is to pay the 2nd defendant its costs in both the action and the miscellaneous proceedings up to 23rd July 1997.

That date is 14 days after service of the 2nd defendant's first list of documents by which time the 2nd defendant's solicitors should have found the letter and the plaintiff's solicitors should have perceived an omission.

2. Thereafter, I disallow the costs as between the two parties and their solicitors and I direct the solicitors to repay to their clients any costs which their clients have been ordered to pay to each other in the proceedings after 23rd July.

57. As between the plaintiff and the 1st defendants, I will hear the parties. Similar considerations may apply in relation to the allegation about the 10th November agreement.